Shengkai Innovations Inc · OTC:VALV
Shengkai Innovations — Investor Presentation (March 2010)
28 slides from Shengkai Innovations's investor presentation, Mar 8, 2010
Slide 1: World’s Leader and Trailblazer in Industrial Ceramic Valves
World’s Leader and Trailblazer in Industrial Ceramic Valves SHENGKAI INNOVATIONS, INC. (NYSE Amex: SHE) Investor Presentation March 2010
Slide 2: Forward-looking statements
This presentation contains forward-looking statements, including financial projections. In some cases, you can iden! Torward looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “projects,” “predicts,” “potential,”
Slide 3: Ticker Symbol SHE
Ticker Symbol SHE Stock Price (Feb.26, 2010) $9.08 Common Stock Outstanding 23.0 MM Preferred Stock Outstanding 7.0 MM Net income (TTM) $16.1 MM EPS (TTM) (@) $0.54 P/E (TTM) 16.9x Fiscal Year End June 30
Slide 4: Company Overview
Corporate History High Tech and New Materials Strong Product Portfolio Broad Customer Base Company Overview Headquartered - Tianjin, P.R.C.; 147 employees as of February 2010; went public in June 2008; PIPE for total gross amount of US$20 MM in June and July 2008 Market Leader in High Tech and New M
Slide 5: Definition: a device that controls the movement of liquid, gas, or loose material
Definition: a device that controls the movement of liquid, gas, or loose material in bulk. = Can control flow, rate, volume, pressure or direction of liquids, gases, slurries or dry materials through a pipeline, chute or similar passageway + Indispensable to virtually all manufacturing processes, en
Slide 6: Superior Characteristics of Ceramic
Superior Characteristics of Ceramic Resistant to Abrasion Resistant to Corrosion Resistance to High Temperature Longer Working Life - approximately 10x that of metal valves Metal valves mainly operate in harsh industrial environments, which require frequent replacements.
Slide 7: Valve Materials: Metal vs. Ceramic
we Valve Materials: ‘3, Metal vs. Ceramic Metal ball after Standard metal seatring Stainless steel wedge gate one month after two months disc after one week == cy € SK ceramic ball after SK ceramic seat ring SK wear-resistant ceramic two years after five years wedge gate disc after five years
Slide 8: Conservation and efficiency of ceramic valves
24,000x0.6x10=144,000 tons steel 1.3 x 144,000 = 187,200 tons coal 360,000 kwh electric power Conserva- tion Annual Capacity: \ 24,000 Pieces 0.6 ton steel/piece icien' ment 10 times longer life Improve- i ment Wee 127,200 tons coal 82,368 tons of CO, 3,744 tons of SO, v Reduces maintenance and repl
Slide 9: Social Benefits of Ceramic Valve
| , Social Benefits of Ceramic ga Valve “Ceramic valve is a major scientific and technologic innovation in the field of new material application. “sThe application of ceramic valve technology will bring extensive social benefits. It satisfies all the requirements for advancement and development of s
Slide 10: Economic Benefits of Ceramic Valve
Economic Benefits of Ceramic Valve Demand for industrial valves ($ Billion) 100 WS Sources: 50 + PRC. General Machinery 12.25 Industry Association, Valve Sector ° a (Sales in the PRG, includes PRC 2009 Global 2011 imports) = + Freedonia Magazine Our Goal in 3 Years 80 % 100,000 pieces Production Cap
Slide 11: Ceramic Valve Application
Ceramic Valve Application Historically Limited by Size = Ceramic valves currently have less than 1% of the overall valve market in China Why? « Valve users not familiar with ceramic technology = Industrial application have been limited as most ceramic valve manufacturers (excluding Sk) can only prod
Slide 12: Shengkai’s Proprietary Technologies of Structural Ceramics
| Shengkai’s Proprietary a Technologies of Structural es ~Ceramics > Added zirconia to alumina ceramics to enhance toughness and resistance to corrosion > Successfully used martensite transformation toughening technology to enhance toughness and to improve deformability. > Applied nano-technology to
Slide 13: Two Excellent R&D Teams
Two Excellent R&D Teams: “Ceramic Material Team = Significantly improve ceramic valves’ performance = Widen the application of ceramic materials «Valve Team = Research and develop new structures and new types of valves = Continue to offer customized solutions to new customers’ problems 13
Slide 14: Shengkai is a Trailblazer in the Ceramic Valve Industry
Shengkai is a Trailblazer in the Ceramic Valve Industry ‘abt ETC iMee * Has sustainable competitive advantage in Technology technology, able to manufacture ceramic 3 valves with calibers in excess of 150mm, u Market Leading to 1000mm P SUI offers tailor-made solutions to customers’ Services problems
Slide 15: Customer Segmentation
a hy: FY 2008 12.4% 7.3% 80.3% : & Customer Segmentation FY 2009 Cars 20.1% 75.2% Petrochemical | Power Generation — Aluminum / Steel / Metallurgy and Other = Proven track record of penetrating Power Generation industry = Successfully expanded into other industries: - Petrochemical - Aluminum / Stee
Slide 16: Nationwide Distribution Network
Nationwide Distribution Network 11 Regional Sales Centers 30 Sales Agent Offices Gearing Up for Exports Export expected to account for approx. 10% of total sales for FY 2010 Approved exporter to Europe, North America, Russia, UAE, Turkey, Pakistan and the Asia- Pacific Region; 5 offices to be set up
Slide 17: Current Production and Capacity Expansion
Current Production and Capacity Expansion Current Facility + Output 10,000 pieces of valves for FY 2009, exceeding annual production capacity of 7,500 pieces New Facility = Triple capacity to reach 24,000 pieces of valves p.a. + Estimated total investment of $30 MM * Expected completion at end of Ju
Slide 18: Growth Strategy
Expand Manufacturing Capacity Reinforce Competitive- ness against Metal Valves Focus on Petrochemical Industry (to reach 30% of total sales) Extend Geographic Coverage Internationally > Construct new manufacturing facility using proceeds from PIPE in 2008 Enhance product quality and production effic
Slide 19: Management Team
Mr. Chen Wang, CEO & CTO — mr. Wang, the founder of Shengkai, has been serving as Chief Executive Officer and Chief Technology Officer since the Company’s inception. Prior to founding Shengkai, he worked at Tianjin Dagang Power Plant (September 1987 — July 1992). Mr. Wang has an MBA from Renmin Univ
Slide 20: Rapid Growth and High Profitability
Rapid Growth and High og, Profitability cAGR=30.4% Revenue ($ MM) Gross Profit ($ MM) Zs 54.9% CAGR=31.4% x0 Ta a 79.1 "e 125 aA Fy2007 FY2008 FY2009 a2 a2 Fy2007 FY2008 FY2009 Q2 a2 Fy2009 FY2010 FY2009 FY2010 Net Income ($ MM) 136 Net Income Margin CAGR=43.6% 34.6% 33.1% 64.0% 2e.4y% 312% 31.1% ;
Slide 21: Summary Income Statements
li I Summary Income Statements a Sed Total Net Sales 39.3 32.4 Revenue Growth nla 21.3% Cost of Sales (6.1) (3.4) (15.3) Gross Profit 74 47 24.0 ‘Gross Margin 58.0% 61.1% Selling Expenses (1.4) (0.9) (3.7) (3.0) Gengyal and Administrative (0.8) (0.5) (2.5) (1.9) Income from Operations 55 33 17.9 14.
Slide 22: Balance Sheet and Operating Efficiency
Cash and Cash Equivalents Trade Receivables Inventories Other Current Assets Total Current Assets Property, Plant and Equipment, Net Intangible Assets, Net Total Assets Accounts/Notes Payable Advances from Customers Other Current Liabilities Total Liabilities Stockholders’ Equity Operating Effi ROA
Slide 23: Capital Structure
Capital Structure FY 2009 Data Per Share $0.33 $0.28 Capital Structure up to date till Feb 28, 2010 Net Income $13 MM Cash from Operations $11 MM Exercise Price Common Stock Outstanding Preferred Stock Outstanding Warrants (June 2008 Financing)” $3.52 Warrants (July 2008 Financing)* $3.52 Total*** “
Slide 24: Investment Highlights
Large and Growi Market for Industrial Valves Growth Driven by Industry and Geographic Expansion Proven Track Records of Solid Superior Growth and High Technology and Profitability Product Portfolio ~~ Ceramic Valves Increasing Poised to Capture Capacity to Meet Market Share from Growing Metal Valves
Slide 25: Company Contact
Company Contact: Mr. David Ming He, CFA, CPA Shengkai Innovations, Inc. No. 27 Wanggang Rd. Jinnan (Shuanggang) Development Area Tianjin, China Email: ming.he@shengkai.com Legal Counsel: Sichenzia Ross Friedman Ference LLP od, Contact Information Auditor: Albert Wong & Co 25
Slide 26: Appendix: Case Studies
oa Appendix: Case Studies Case 1: HUNTLEY Power Plant Case 2: China National Offshore Oil Corporation The Huntley Power Plant in the Town of Tonawanda, USA The Challenge: = In Huntley Power Plant, fly ash conveying system previously used metal valves = The metal valves can only survive max. for 3 mo
Slide 27: Appendix: Case Studies
his Case 3: Russia Chemical Plant aE Appendix: Case Studies Case 4: Zhonghua Electric Power Co.; The Challenge: + Environment for the inquired valve is quite hostile. hostile environment, natrium cyanide content is 0,5-ig/L, pH=11-11,5; saline solution contain calcium sulfate, calcium carbonate, dif
Slide 28: Thank You
Thank You
Shengkai Innovations — Investor Presentation (March 2010) on 6ix